The Home Depot® said it will acquire Orlando, FL-based wholesaler Hughes Supply for an aggregate consideration of $3.47 billion, including the payment of $46.50 per outstanding share and the assumption of $285 million in net debt. Completion of the purchase is expected late in the first quarter or early in the second quarter of this year. Hughes Supply will operate as part of The Home Depot Supply, a division that serves business-to-business customers such as homebuilders, professional contractors, municipalities and maintenance professionals.

The acquisition of Hughes Supply will more than double the size of The Home Depot Supply, with projected 2006 combined sales approaching $12 billion. Together, the two companies will serve a $410 billion market, addressing the continuum from infrastructure and construction to maintenance, repair and remodel.

Hughes Supply, which has more than 500 locations in 40 states and employs about 9,600 associates, has been No. 2 in Supply House Times' Premier 150 listing of wholesalers, which ranks companies by their annual sales, since 2002, just behind Newport News, VA-based Ferguson. Prior to that, Hughes had been ranked No. 1 in the Premier 150 since 1998. Hughes Supply has ranked in the top five among Premier 150 wholesalers since Supply House Times published its first listing in 1993.

Tom Morgan, Hughes Supply's president/ CEO, will leave the company after the acquisition has been completed, according to published reports. Joe DeAngelo, the executive vice president at Home Depot who runs Home Depot Supply, will lead the combined operation.

“The current Hughes senior executive leadership is expected to remain intact until the transaction closes,” said Lauren Brey, Hughes' director of corporate communications. “Until the transaction closes, it will be business as usual.”

The Home Depot said that Hughes Supply's leading position in many of the professional markets will add new platforms to The Home Depot Supply portfolio, while also providing additional scale to the division's positions in waterworks, professional construction supply and multi-family maintenance.

“Hughes Supply, our largest acquisition thus far, will accelerate the execution of The Home Depot Supply strategy of repeating in the professional space the same type of market transformation The Home Depot pioneered and executed in the do-it-yourself retail space,” Joe DeAngelo, executive vice president of The Home Depot Supply, said in a statement. “Together, we can better serve local, national and government customers, offer the broadest range of products and services, and drive synergies by leveraging our combined purchasing power and customer service.”

Hughes' Tom Morgan said in a statement, “Home Depot Supply is well-positioned in the marketplace and possesses a wealth of resources to thrive in an industry where there are tremendous opportunities for growth. This combination is positive for all of our constituents: creating significant shareholder value, increasing the opportunities available to our employees, continuing our commitment to superior service to customers and building on the foundation of strong vendor relationships.

“We have accomplished a great deal since our company's founding in 1928 due to the dedication and hard work of our people. Together with Home Depot Supply, we are positioned to achieve even more. We have a bright future ahead,” Morgan said.

Hughes Supply reported the highest quarterly net sales in its history in the third quarter ended Oct. 31. Sales for its last fiscal year ended Jan. 31, 2005, were $4.4 billion. The wholesaler addresses multiple segments of the construction, maintenance and repair industry including plumbing/HVAC, industrial PVF, water and sewer, MRO, electrical, building materials, and an “other” segment that includes the mechanical and fire protection businesses.

Speculation regarding this acquisition was published in Supply House Times (December 2005, page 6) based on stories in the Wall Street Journal and the Orlando Sentinel.

The Home Depot: The Largest Wholesaler?

The Home Depot® unveiled its growth targets for 2010 at its annual meeting with the investment community in January. The company said it has targeted annual sales growth of 9 to 12%, driven by 400 to 500 new store openings over the next five years and by significant growth in its services business and Home Depot Supply. By the end of the decade, Home Depot Supply plans to operate more than 1,500 locations, covering all 50 states, becoming the largest diversified wholesale distribution business in the United States. By 2010, Home Depot Supply will generate 18 to 19% of overall sales.

“We are poised for dramatic growth over the next five years across our business,” said Bob Nardelli, chairman, president & CEO, in a statement. “Our planned acquisition of Hughes Supply is a great example of how we are rapidly replicating in the professional market the same type of transformation that we brought to the home improvement retail market.”

Hughes' View

After the transaction is closed, a cross-functional team from both companies will work together to integrate operations, according to Lauren Brey, Hughes Supply's director of corporate communications. “We have built a strong and successful business and we will have a strong voice in this merger and in the integration process,” she said. One of the key achievements of The Home Depot Supply has been the ability to identify, acquire and then grow the companies that become part of The Home Depot family, Brey said. As an example, she pointed to White Cap, which started with 70 branches in 17 states and has grown to 100 branches in 23 states as part of The Home Depot Supply.

“Each business the company has acquired is performing better than its expectations, growing faster than before it was acquired and growing faster than its relative market,” Brey said.

There are no immediate plans to change the company's name, Brey said. Other companies that have become part of Home Depot Supply, such as National Waterworks, White Cap Construction Supply, Apex Supply and Williams Brothers Lumber Co., kept their names. Plans are to keep the Hughes Supply operation in Orlando, she added.

Another Large Wholesaler's Perspective

Hughes Supply and Newport News, VA-based Ferguson have been holding the top two spots in the Supply House Times' ranking of the Premier 150 wholesalers for years. Supply House Times asked executives from Ferguson to comment on the Hughes acquisition by The Home Depot and what it might mean to the industry. Here is what they said:

John Stegeman, president & CEO, Ferguson: “Home Depot and Hughes are respected companies that strategically understand the benefits of consolidation. I believe in the short term the industry will see very little change. The size of Hughes Supply will dictate business as usual until their executive teams understand synergistic opportunities. In the long term, we should expect efforts to leverage capabilities including logistics, technology, geographic expansion, vendor relations, marketing and the addition of other key wholesale distributors to further entrench Home Depot Supply with the service professional. Ferguson expects that Home Depot will continue to look for opportunities to grow with the professional contractor through additional acquisition. We also realize the importance of sound financial management for a large company and welcome the attention that Home Depot will have to focus on to improve the return on their recent wholesale investments. We expect this to be good for our industry. Our focus will continue to be to provide opportunities for our people and to continue to find ways to serve our customer.”

Frank Roach, chief executive, Wolseley-North America: “We've always competed with Hughes Supply and welcome good competition; we have no plans to conduct business differently. We will continue to find opportunities for our associates and add value for our customers. Home Depot's acquisition of Hughes Supply in no way distracts or detracts from our focus as a company.”